Payday Loan Customer Acquisition Costs – What Do YOU Think?

Installment & Payday Loan Customer Acquisition Costs

Getting a payday loan customer into your store or on your website landing page is a challenge. What works today? Radio, TV, direct mail, human directional advertising (sign spinners), Google, Yahoo and Bing, DuckDuckGo searches, referrals, Craigs List, newspapers, Penny Saver and Green Sheet ads, signs, flyers, business cards yada, yada, yada.

Ah! And then there are smartphones, mobile, responsive… 70% of our traffic is coming via our consumer applicant’s phone. This is true for both our brick-n-mortars and our Internet lending properties.

The real question? How much should you spend to attract an installment loan consumer, a payday loan, car title loan, or a scrap gold customer?

Consider the “Lifetime Value” of your customer.

The higher your average customer’s “Lifetime Value,” the more you can spend in advertising dollars to attract them. Pretty basic, right? Let’s call this our “Allowable Payday Loan Customer Acquisition Cost – APDLCAC.

So… how do we compute our Allowable Payday Loan Customer Acquisition Cost?

  • We put a value on our average payday loan customer’s Lifetime Value.
  • Then, we subtract our costs to create and deliver payday loans to our customer over the entire relationship we maintain with our customer.
  • We subtract our Overhead (minimum recurring expenses to continue in business (salaries, rent, utilities, phones, etc.) divided by our total customer base (fixed costs) we’ll need to stay in business over this time period.
  • Multiply the result by 1 minus our desired Profit Margin and this reveals our Allowable Payday Loan Customer Acquisition Cost – APDLCAC.

Simple, eh!


Assume we are simply awesome at servicing our payday loan customers once we latch onto them; I mean acquire them!

Say our typical customer Lifetime Value is $2800 over 10 years. (4 loans/yr X 10 years. Avg loan is $400 at $17.50/$100 = $2800 fees)

And let’s say the costs to create and deliver this customer is $500 over this 10 year period. That leaves us with $2300 in revenue per payday loan customer served.

And let’s say our Overhead expenses are $1,000,000 over the same 10 year period and we serve 2000 customers.

Fixed costs = $500 ($1,000,000/2000 customers = $500 )

This leaves us with $1800/customer before marketing expenses ($2300 – $500).

Assume our goal is to achieve a 60% profit margin. We can spend a maximum of 40% on marketing costs.

Thus, our APDLCAC = $720 per customer ($1800 X .40).

So… any customer we “buy” for $720 or less is a bargain!

PS: Want to pay $100 for FUNDED loans? That’s correct. We have a seriously experienced lead generation company offering loan leads for $100 each – AND YOU ONLY PAY IF YOU FUND THE LOAN! [Reach out with your contact info and “100 Funded Loans” in the subject to Jer@PaydayLoanIndustryBlog.com .]

NOW, what if these payday loan customers are using your other services as well? You offer car title loans? Installment loans? You buy scrap gold? You sell money orders? You cash checks? You offer mobile phone service? You do tax work? What’s that do to your Lifetime Customer Value number?

What? You don’t like my assumptions? Define overhead? Is that “gross” Profit Margin? Yep, you may find this controversial or even simplistic. But it got you thinking, didn’t it?

For more customer acquisition cost insights, study our “Loan Bible” and read:

“The Personal MBA: Master the Art of Business” by Josh Kaufman.


Comments ( 10 )
  • Tennessee Gun Country says:

    GOOD STUFF HERE! As you point out, you’ve given me plenty to think about. Was it Ogilvy who said something like, “I know 50% of my advertising is working but I don’t know which 50%?”

    I have some deep questions for you regarding this subject of “Customer Acquisition Costs” so I’ll schedule a call for next Monday if you’re available.

    THANK YOU for all you do, Jer!!!

  • Varun says:

    Where did you come up with the 10 year customer lifetime assumption from? Is there a way to back that up using data from lenders? Thanks!

    • Payday Loan Industry says:


      This customer life-time relationship is based on sub-prime consumer data bases such as Clarity. No doubt, because of the Internet and mobile, this is a local phenomena. PDL borrowers who experience positive relationships with lenders do maintain loyalty. B & M lenders, like ourselves, have cdlients that have remained with us since 1997 when we opened our first location.

      What we are experiencing today, is that we have borrowers maintaining relationships with multiple Lenders. This is particularly true of borrowers residing in states (IE: Florida) that maintain data bases.

      Jer – Trihouse

  • main says:

    Great post! Fantastic!!! Bookmarked this web page that has this striking guidance. Will arrive back to see if there are any updates. You, the author, are a master. Many thanks.

  • PaydayLoans says:

    Shouldn’t you also account for bad loans in the picture to offset costs involved in acquisition? Is there an industry average on what % of payday loans are bad, i.e. aren’t paid back. Another item to consider possibly the cost of collections in case that track works to a certain degree.

  • Anonymous says:

    Thank you very much , I’m like it and very good idea

  • Dave MacKay says:

    I do not see a cost for lead referral. Do you not use affiliate marketing.?


    • admin says:

      Dave, we do. Others may not. In this case, we plugged our blended customer acquisition cost into the $500. Of course our real goal with this: “But it got you thinking, didn’t it?

  • Jonus says:

    You made some great points, and a great way to figure out the cost to acquire a customer. However 1 Question. You said to multiply by 1 then minus our desired profit. To me the multiply seems like a wasted step. No?

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